DotCom Bubble

Last Edit: 28/07/17

The DotCom Bubble, also referred to as the "high-tech bubble",
was a speculative bubble, lasting from 1997-2000, that fueled a rapid expansion
of the Internet. Speculative bubbles are a common feature of open financial
markets, where stocks or other economic assets are traded in high volume,
and at a value that is considerably higher than their innate value. The DotCom
Bubble was fueled by investment in technology companies who operated at a
loss, but with the assumption, with time, that their market share would equate
to long-term profitability.

Nasdaq Composite Index: Highlighting the Dotcom Bubble 1997-2001

In the early 1990's, the Internet was transitioned from a U.S. federally
funded network (backbone) to a commercial one, and the World Wide Web was
launched as a service on the Internet in 1991. By 1994, it was clear that
revenue could be generated by commercial websites, and investment into 'pumped
into' start-up technology firms from that date. Some of the technology companies
that received investment during this period, included: eBay, Amazon, Pets.com,
Yahoo!, Excite, Lycos, Inktomi, and Paypal.

The majority of technology stocks that were traded during the DotCom Bubble
were listed on the NASDAQ stock market: based in New York, the NASDAQ focuses
upon technology companies. Due to the DotCom Bubble, the NASDAQ Composite
index climbed from 1000 points in 1995, to over 5000 points by the year 2001.
When the DotCom Bubble burst in 2001-2002, the NASDAQ index crashed from it's
peak of 5000 points to nearly 1000 points.

While the most successful tech companies managed to survive the DotCom Bubble
- most notable: Amazon, eBay and Paypal - many others failed, or never recovered
their value. For example, during the DotCom Bubble, Lycos was purchased for
over $12 billion, but were eventually sold for $95 million in 2004: losing
over $11 billion in valuation. Some of the notable failures of the DotCom
bubble include: Boo.com, Broadcast.com, Den.com, eToys.com, Flooz.com, Kozmo,
Pets.com, Razorfish, theGlobe.com and Webvan.

While tech stocks have stabilised since the DotCom bubble, there has been
warnings of a new modern tech bubble: centered around Bitcoin and digital
currencies. Howard Marks, whose asset management firm Oaktree Capital oversees
up to $99 billion of assets, has been warning "digital currencies are
nothing but an unfounded fad, or perhaps even a pyramid scheme." With
the Ethereum cryptocurrency having risen by 2000% in 2017, and Bitcoin rising
160% during the same period, Howard Marks is not the only notable voice in
the financial industry warning of a bubble akin to the dotcom bubble: Warren
Buffet, the 'Oracle of Omah', has previously warned investors that Bitcoin
was a "a mirage".